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My bills are too high to expect me to help out the economy.….– kavips

One Trillion shy of all domestic Household debt (14T) , is the debt imposed upon us by “the borrowing of our governments”… local, state, and Federal (13T). The majority (10.4T) is our Federal debt. It should come as no surprise that tackling this task should be our first priority to insure that any short term economic gains we create, are not wiped out months or years later.

We were on a successful track to achieve this goal just 8 years ago… Budget surpluses were projected far into the future, and before our eyes, the whittling down of our national debt actually happened . Today, Generation X’rs and Y’rs simply accept that as fact, that balancing the budget is possible. Very few recognize how much of a miraculous achievement that thing is: a budget surplus… For until Clinton-Gore arrived, no one ever expected our national debt to decrease. But decrease it did and not only did it actually drop within our lifetimes, but a credible path was tracked showing it decreasing year by year to negligible amounts. And then … with one election… things drastically changed. We stopped our Treasury from taking in enough money to cover its known expenses and instead, borrowed the amount to fund what was necessary.

In eight years we went from a projected $5 trillion dollar surplus to an actual $10.4 trillion dollar deficit; a flip flop of $15 trillion dollars! Political afficiendos will be quick to blame Republican philosophy and their elected president: George W. Bush. Unfortunately they are way off the mark. (I say unfortunately for if one party and one president were truly the problem.. the fix would be much easier to amend…)

The problem is a systemic one. The entire financing system of the Federal government is now broken; almost to a point where returning to the glory days of before 2000, is barely considered a laughable alternative. The problem can be best ascribed to a head on collision between a poorly timed demographic shift, and unreal expectations. Put simply in one word, entitlements; put in four words, Social Security, Medicaid, Medicare.

Here’s how paying off our nation’s trillion dollar debt benefits us.

2007 Federal Budget Expenditures
Courtesy of Federal Budget 2009 (Right click for full image)

Looking at the image and being asked what can be cut under current law, one sees that only two areas of the above pie chart cover discretionary spending. The other four cover mandatory, non-discretionary items. That means that they get paid, … irregardless. We have no choice but to pay them fully. We have to pay interest. We have to pay Social Security. We have to pay Medicare and Medicaid, as well as all other mandatory payments such as Treasury obligations.

The only two areas where we can slice, dice, and cut back on expenses, are between that of national defense, and everything else we think of as being “our government”; both together amount to a paltry 38% our our entire expenditures. 62% of our Budget is locked down, and commitments have already been determined where it will be spent…. long before the fiscal year even begins.

So one sees that if we were to pay down the National debt, we free up the interest payments ( 9% of our current budget) which can then be applied to other things we might need ten years from now.

Obviously our entitlement programs will have to be changed. One can see that ridding ourselves of Medicare and Medicaid as a governmental expense would go a long way to reducing our deficit, and ultimately be a big push bringing our interest payment closer to zero…. But doing so… brings up the ugly social issue of what to do with those Americans lacking health care….

Contrary to popular belief getting rid of these programs is not completely impossible. Except for the time-frame covering the past 40 years, mankind has survived OK without Medicare and Medicaid. Rome lasted a thousand years without it. We all know that if we suddenly became faced with an all-out-war against some type of alien invader (Independence Day),what money was currently designated as a mandatory expense to cover health costs, would instantly be moved to supplement our planet’s defense with nary a whimper. Our sick would make due the best they could… perhaps even do better than they do now… (at least for those 2 million Americans a year who pick up a nosocomial infection!)

The writing is on the wall. One entitlement will have to fall in order to save this country. As America’s retirees get older, the medicare problem is one costly extravagance that must be looked at closely to determine whether it helps or hurts our nations viability.

When compounded with Social Security’s insolvency, the Medicare situation takes on an additional albatross around its neck. For as one thinks about it, we are using federal funds to extend the lives of those who are receiving Social Security. Using all and any expense available to keep someone resuscitated long enough to earn one more Social Security check, does not make practical or financial sense. We must rethink our commitment on how we will provide long term health care, based on today’s prices… not those prices existing back when the Great Society was envisioned….. the 1960s.

Ultimately for governmental medical assistance to survive, we will have to suck the profits out of health care. There will be a few who protest. But if Medicare were suddenly to cease to exist, and health care became a cash only commodity, somehow we would survive. Who knows? When faced with no free blood pressure medicine, we might try other methods to keep alive… such as eating right and exercise.

The amount of people dying will never change. Everyone born will die at some point. All we are doing, is removing the unlimited amount of taxpayer money used to support the unreasonable assertion,that we have the right to use lots of other people’s money to live as long as we selfishly can.

Think about this. Very few of us would purposefully bankrupt our own flesh and blood children by forcing them to pay out of pocket for our over-the-hill medical needs… With Medicare being fully funded by taxpayers….. it is doing just that…

Of course there is another method we can use to fund our budget and keep Medicaid and Medicare: bring in double the revenue…

But, because of the demographics of our aging population and the sparsity of those working young who are paying for the old people’s expenses, keeping this cancerous expense on-board, and paying for it by saddling those still working with double taxes, is not a viable option…. One could argue that it is morally wrong. It would be saying to our children that “yes, we had the American Dream freely given to us by our parents; now you will have to work much harder, and earn even less, just to continue that dream for us.”

The writing is on the wall… Sometime, somewhere in our future, it will have to go… Not disappear, mind you, but in its form now, funded as it is currently… it cannot last… The pie chart tells all. Tweaking 3 or 4 percent in any one category makes no dent upon our unfunded problem.. We must begin preparing ourselves for this uncompromising reality; one entitlement will have to go. Looking above we see the absence of Medicare and Medicaid in the Federal Budget, is more plausible than the loss of any other category.

If we were to wean ourselves away from that entitlement, and apply that amount in bulk towards our national debt as a payment of one half of one trillion per year, within 20 years…. our debt will be gone.

For when it comes down to discretionary spending… we are as low… as we can go… The cut has to come from Medicare/ Medicaid. What replaces it is a whole different discussion…..

So how high do taxes need to rise, (using today’s figures without cutting out one entitlement), if we truly wish to decrease our national debt? Since the economy grew significantly during the Clinton years when all taxes were higher, those rates we can be assured do not stifle economic growth. As a first step, that would be the smartest move; let the Bush tax cuts expire. …To those who argue that increased taxes constrain our economy, try and get a solid answer from them as to why the economy grew like magic when they were previously in place.

Since it has already once been done, it should not be hard to do it again. Right? Need more detail?

Let’s look at the twentieth century as a whole.. This chart simply shows the highest marginal tax rate per year. It ranges from 7% in 1913 up to 94% in 1944-45. Graphically displayed it looks like this….

Graph of Top Marginal Tax Rates 20th Century
Graph Courtesy of Truth and Politics.org

Although the graph stops at 2003, this evidence shows the ending level extends at 35% through to 2008.

If one couples one’s knowledge of history with numbers portrayed upon the graph, a correlating factor of 40% seems to be the ideal marginal tax rate.. When rates dip below that amount….they may last for a few years at that level, then they soar sky high for many years thereafter… It appears that languishing below 40% puts too much stress on the private sector. Something goes wrong, it buckles, and great governmental expense is taken to bring it back under control.

But if one uses the same evidence portrayed on the graph, and this time couples it with one’s knowledge of economics, they notice that lower rates produced boom economies, and the higher rates stifled economic growth.

Recent knowledge ( ie. today’s events) coming off of the experimenting and tinkering between 40 and 35 percent, leads one to believe that 35% is too low to sustain the economic viability of this country. As a nation we have socialized ourselves a bit too far to survive upon those lower rates…. 40% seems to be the optimum low that we can go….

Unfortunately because we played around with cutting underneath that magic number, we will be paying steep rates throughout the near future, very much like those which occurred between 1933 through 1963. Those who lived their full lives listening to Republican partisans constantly complaining about today’s high taxes… well, thanks to them (Republican partisans), America’s wealthy is about to find out just what “high taxes” really are…. As one can see from the chart, and can estimate from the amounts of the bailouts being currently given out…. the highest marginal tax rates for the wealthy, will climb higher than most of our wealthy has seen in their lifetime…

And because of that increase… our economy will slow.

The beauty within this chart is that it provides to all a sense of where the line needs to be drawn.. When we talk of raising taxes… we are speaking of returning to 40%, a level only 5% different from where we are now… What that means is … instead of someone making a full billion dollars now, after future taxes are deducted that person would be still sitting on $950,000,000 dollars… Who wants $950,000,000 dollars? I do. I certainly would not fold my business just because I had to give an additional 50 million over to my government, a scare tactic some may make us try to believe. Especially since I already know that our economy functions more consistently with that additional 5% amount financing the support structure on which all businesses depend on.

So how much revenue does that paltry 5% increase raise? Try $390 billion dollars per year, based on current data provided for this year’s third quarter.

True, that five percent does suck a little spending out of the economy, but if applied to the deficit, it reduces the amount borrowed which in turn lowers government’s cost. Eventually when interest payments reach zero, we can again fund our government on a pay as you go plan, thereby balancing taxes with costs in a fine equilibrium….

So if we hold costs the same. How long and how high do we raise taxes to bring our deficit to nothing in 11 years… 2020.

Debt —–Yr Expenses—Yr income—-Yearly incremental amount
10.4T——— 2.7T ————-2.6T ———————– 204 B

(The extra 100 Billion comes from above: it’s the yearly difference between current expenses and income multiplied by 10 for each year.)

So how much does that cost us? 204 Billion is what percentage of 2.6 Trillion? 7.8%

We need a yearly increase of just 7.8 percent to pull us out of debt in ten years, assuming we continue to spend as much as we do now, and that we continue to receive as much national income as we do now……..

That would make the highest marginal rate (35% + 7.8%) equal to 42.8%: just 2.8% higher than it was during the booming Clinton Presidency. Really…. is that not a lot of hardship to undertake?… Especially when one compares it what our predecessors, “the Greatest Generation” had to pay in order to give us the prosperous America which we inherited?……

And if that increase amount is spread across the entire spectrum of our sources of income.

Preliminary Estimated Receipts for US Federal Budget 2009
Courtesy Federal Budget 2009 (Right Click for Full Image)

The actual cost to the top ranked taxpayers, could be less…. One would be well advised to realize that the stimulus packages perhaps costing up to 3 Trillion by the time politicians finish robbing our future, will extend these estimates considerably.

But seeing the numbers makes one realize that we are not at the end of financial stability…. The United States has vast resources at its disposal to throw towards the global economic meltdown, slowing and then stopping its progress. We need just a moderate revenue increase to make it happen as well as begin making plans for shedding responsibility for one of our hitherto guaranteed…. Federal entitlements.

The question is what is in it for us… Bottom line… a job.

Although distant and remote, the National Debt plays a huge role in our economy, just as do charges and credit card payments play a similar role in everyone’s household finance. Think of all the spending you personally would be free to do, if you owed no one any money and could pocket what you earned…. That same principal holds for our government as well.

Those of us who still have jobs today are worried. Those of us without… are worried even more. Our jobs and long term security, depend upon our Federal Government getting costs in line and living within their means as well…. As with any investment, paying out an additional 7.8 percent is affordable if one gets a payback of a higher return…

Those living in the 90’s saw it with their own eyes… Dropping the debt creates long term stability and that…. creates jobs.

How Higher Tax Rates Benefit Household Net Worth

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Saying a lot is one thing; planning it and executing it is another. — kavips

Here is the “full court press” we recommend…

We recommend dividing our economic gurus into three teams….

Team One’s responsibility is to jump start our economy. In athletic parlance, it is called “winning today’s game” It’s goal is three consecutive quarters showing real GDP growth, coupled with three quarters all showing an increase in the level of personal wealth attained by each of the five quintiles. It then disbands.

The second team’s responsibility is to tackle our longer term problems of our deficit spending, and our ballooning entitlements… In athletic parlance, this is called getting ready for the playoffs…..

The third team’s goal is to focus on how we will one day exit our current, direct and necessary governmental intervention into the economy at some point in our not so distant future…. In athletic parlance, this is called building a team for next year….

These three teams must get started immediately, for successful policy on all of these outreaches is critical if we are to again become an healthy economy. We expect to find that each teams answers may contradict the other teams in both theory and philosophy. What works for today, may not work for tomorrow. If so, we need to recognize that possibility now and lay plans for any upcoming change in the future. But the sad truth is this. Right now, we do not have any plans sitting on the shelf, which we can pull down, and right our keeled-over economy. We need some contingency plans in writing, emanating from experts and experienced thinkers, and not from politicians whose responsibility is to jerk their knees to the mood of the moment.

Again, those teams can be summarized as follows: the “today” team, the “next game” team, and the “next season’s” team……

Here is what we recommend for the first all star team to pursue.

Surprisingly we recommend that we find the proper way to give each mortgage holder a three month holiday from paying their mortgage, one giant loan extension. This break allows them to get their finances in order… There is no way any government can match a stimulus impact nearing the size of this amount. If this is utilized, within three months, America’s economy will have pulled itself out of its depression. We found the proper Executive Order outlining such, if issued by the President, could be enough to put this policy quickly in effect… We also found that it worked best if the benefits were not watered down by any type of means testing, but were given to all homeowners irregardless of their income level… It would be fair to all: a pass for three months on paying one’s primary mortgage.

Secondly, we recommend that a way be found to force lending. We discovered that it was the process of “calling” in one’s loans, that made it difficult for banks to lend, both during the Great Depression and today… We recommend that some agreement be made among principal parties, so that when a loan is ever called, the banks coughing up the funds, have a long span of time in which to acquire that capital… perhaps up to a year…. Removing all fear that a bank may go under, could be accomplished rather quickly by eradicating it’s uncertainty that at a moment’s notice, it might have to give all of it’s money over to another bank…. This could be effectively done by issuing one more Executive Order directed towards the Federal Reserve, which states that banks had up to a year to turn over their assets if their loans were ever called in by another bank…. and that the bank requiring the loan to be returned, could go ahead and place that incoming amount on its books as an asset, since the money was surely on its way…

Thirdly, we recommend direct projects be funded by the government for the sole reason of putting people back to work, and in doing so, inject cash directly into the system… However we recommend some qualifications be instituted on what was built. Building a bridge to nowhere does little good except during the time of the actual construction. Building something like new schools, on the other hand, continues various economic benefits long after the building is finished. New teachers and new administrative personnel are needed for many years thereafter… The best bet, and what should be the primary factor in deciding which of the projects clamoring to be built will get the nod, is to insist that whatever is built, will be something that creates new jobs that last long time after the project has been completed…

Number four: we recommend that unemployment be fully funded… We also recommend that all those receiving unemployment should be required to work in some capacity, on their own time as a volunteer. Currently our unemployed payments are hinged on the proof of “searching” for work… We felt that with no jobs being created by the private sector at this time, that this clause of the Unemployment Act would be a waste of effort; we felt it was far better to help a child read, pick up neighborhood litter, or volunteer to assist a classroom in a neighboring school, and then issue proof of doing so to claim a check, as opposed to filling out applications that would not be seen by employers definitely not hiring…… Therefore we recommend that unemployment be tied to giving service back to one’s community. If unemployment ever reaches 25%, with one out of four out of work as it was briefly during the Great Depression, keeping those unemployed busy, would be good for them as well as for our nation.

Number 5: We found the stimulus plan in the form of a rebate check, went to pay down existing debt and did little to stimulate the economy. We found that tax breaks for corporations were equally a waste of resources and actually hurt the economy far more than helping it.. A better approach we found, one which was historically documented throughout the Eisenhower and Clinton years, was to increase the rates that corporations and the wealthy were required to pay in taxes..and then give them an option out for not doing so. We found the economic growth caused by doing this, was rapid. Higher taxes caused the consistent reporting of lower profits mostly because companies opt to reinvest their money into themselves instead of forking it over to the IRS.. This did two things: this dropped the volume of money leaving the private sector, and secondly it caused increased hiring. Having every business reinvest its own money back into itself, pumps far faster money into research, development, growth, new products, new jobs, than anything the Federal Government could mandate directly with their limited resources. We strongly recommend that corporate rates be quickly increased, coupled with sunset restrictions that are guaranteed to lower the high rates when certain agreed-to economic standards have been reached… for instance 3 consecutive terms of 3% GDP growth in a row… The higher rates would then automatically expire.

Sixth. We encourage the ability of businesses and homeowners to completely and fully write off capital investment within the year that it was purchased. This results in lower taxes being levied upon those businesses during the first year of this policy change, when they sorely need it; and slightly increases the subsequent year’s taxes over the span of several years,… when they don’t… Whereas this can negatively impact the government’s revenues during its first year of implementation, it will serve to increase them during the boom times to follow, assisting us in our long term effort to diminish our national debt.

Seventh. We recommend that toxic assets not be bought by the federal government, but instead have their value guaranteed by the Federal Reserve for a fee. The guarantee simply states that the Fed would ante up the difference if needed, should the asset fall and eventually not meet its purchased value.. These toxic assets would then be marketable, and could then be picked up and held by investors, thereby again infusing banks with capital. It would serve us well by not tying down billions of the Federal government’s money. It would be similar to how we responded to our largest problem during the Great Depression. Back then, we didn’t nationalize the banks; we guaranteed the deposits within those banks… Guarantees, as it turned out, that we rarely had to pay.

Eight. The same type of guarantees should be applied to the process of overloaning. The local bank makes a construction loan, knowing that it is insured by the fed from any defaults. The stipulation is that it uses its own money in its own neighborhood, knowing that were serious default to occur, that the Federal Reserve would guarantee its return… The Federal guarantee allows a bank to loan more money than it has. The bank gets its return as payments on those loans begin pouring in. After the banks regain solid footing, these special loans could be sunsetted… Following this plan, puts capital directly where it is needed: in the hands of those who will rebuild our infrastructure.

Nine. The imposition of a Carbon tax acts like an old fashioned tariff to cheap imports. Although this impacts the cost we may pay for some items we use as a consumer, it makes the option of building in America while still paying higher wages, cheaper than shipping overseas to a sweatshop and importing those products back. Likewise the inflated fuel cost suffered last summer, had the golden lining of making building within the United States and shipping locally, appear more competitive than building offshore and transporting products back. For businesses to stay in this country, their entire cost. from top to bottom, must be cheaper than it is elsewhere. We need to lower all other costs for business just so we can keep our wages higher. For those wages are what drives our economy… The Carbon Tax, if elected by us and opted out by our competitors, can balance our two costs and help us to keep businesses inside this country.

Ten. Removing health care responsibility from being primarily funded by businesses, would assist in cutting labor costs low enough to make our country more competitive in global markets. A good portion of our nation’s economic health, lies in the number of manufacturing jobs it has at its disposal. Dropping costs vis a vis our competitors, would make investing in America again, far cheaper than moving into a plant offshore.

Eleven: Moving our nation rapidly to a source of energy far cheaper than the current costs of carbon fuels, would assist in dropping our businesses’ costs lower than those of our global competitors. It takes a wealthy country to do make such an investment in infrastructure, and as a nation, we the people of the United States of America, have the competitive edge over all other countries to do so. Wind and Solar have free fuel costs. That means applying efforts to use new technology to decrease capital costs, will over time, guarantee a significant drop in the cost of all energy being used within our borders. It’s cost needs to drop low enough to make the option of opening a plant in the US, equal to or cheaper than that of building one overseas.

Twelve. We need to begin planning for our new baby boom’s investment. 2007 was the first year we broke the 1957 record of new births. Increasing population is one of just two ways to increase an economy. That process was started during the nights of 2006 and early 2007. We need to prepare for impact in 6 years, 12 years, and 18 years as that baby boom bubble aims for our educational system… We need to be ready with new schools, new teachers, as well as eventually, more new jobs.

Thirteen. Returning to better and tougher product regulation can also increase the worth of products made in America. Already we see signs that “Made In America” is a quality statement among the wealthy Chinese… Beforehand, we were guilty of making the assumption that quality would remain consistent, no matter from which locality a product was made. Last year with pets dying, poisonous lead found in children’s toys, and other international quandaries, we finally understand how again returning to a tighter system of regulating ourselves, can make our products appear trustworthy and thereby remain more competitive, despite the higher wages we are paying to our nation’s hard working employees.

Fourteen. We must not panic ourselves into protectionism. It was tried and failed; the Smoot Hawley Act aggravated if not instigated the 1930s Great Depression. Protectionism can work on a micro scale, case by case, as it did for Harley Davidson during the Reagan years. But using protectionist philosophy as a broad swipe, drastically drops our nation’s exports, causing the GDP to collapse, thereby raising unemployment to levels currently undreamed of. Protectionism on a broad scale is very bad for our economy.

We now move on with the agenda of that second team: the one responsible for tomorrow’s game. This team’s goal will be to again remake America solvent. The second team must focus on these following problems. As often happens in the financial sector, having two separate teams work independently, could be likened to any corporation which had one team working with the court on its immediate bankruptcy proceedings, and another team working with its creditors on how to alleviate its long term problems with long term solutions.

We must be ready before our depression ends, to jump into phase 2 and prepare for the method on how we wean ourselves off of debt. It is not just the National Debt we need to fix. We also need to tackle our personal, corporate, state and local government’s propensity to spend money we don’t yet have… As a society, we want more! And as consumers we are just not savvy enough to understand that buying now, will cost us more later…. “Oh, I can afford that low payment”, has become our excuse to put off our fiduciary responsibilities…..

We recommend that the compounded power of interest needs to be re-explained to our population; it needs to come from a political figure they trust. We were shocked to find that most citizens of our nation are relatively ignorant about the math behind money, The “bully pulpit”, we think should be used to explain how some debt for houses and building businesses is good, but that too much for personal consumption is not in the best interests of our nation…The accumulation of more and more debt, needs to be framed alongside the political perspective that in doing so … we cripple our country. “By increasing your personal debt, you are not only causing hurt to yourself, but you are eating away the foundation upon which stands this once great nation”….

We recommend the following three step process be used to deal with the personal debt of private citizens. We recommend first dividing the population up into these three classifications of personal debt… 1) Those who can never catch up. 2) Those who can catch up part way, and 3) those who are still living within their means.

For the first group we recommend biting the bullet and processing that whole group through bankruptcy as expeditiously as possible… Let them begin from scratch, and let’s write off their bad debt at once. It makes for a bad month, or two, and it severely impacts one quarter. The alternative to quick action, is to ignore the inevitable by muddling through this malaise, and continuing to have this sickness interfere with our economy for many quarters to come.

For the second group, we recommend the recalculation of their debt according to this formula which is different from whatever loan agreements they originally signed. Recognizing that much of their debt is currently at interest rates well over 25%, and a majority of their debts are carrying over one third of their balance in superfluous late fees, we recommend that each of those debts receive a new recalculation based on the amount of principal they borrowed, plus an average, fair interest rate over the life of the loan. We recommend 8 %, considering the Federal Rate is now close to 0%. We recommend the removal of late fees entirely, and should a payment not be forthcoming by it’s due date, that only, … the accumulated interest be added to the balance. (That was the original plan of the United State’s credit card industry up until 1997). We acknowledge that those still dreaming of a 50% rate of return off some accounts may scream that they are being taken. We simply argue in return that those who have been taken by them all these years, are finally receiving their fair break. 8% interest is still higher than any loss, which in today’s economic world is a very real alternative.

For those who have been consistent in their payments despite these hard times, ie the third group, we recommend that all of past credit records be wiped out entirely and that their credit scores commence immediately at 800, the perfect score. We feel that this would give immense incentive to all those of the top echelon for continuing to pay in a timely fashion, especially as they see others who can’t pay around them receive huge breaks. We recommend that anyone paying off pre 2009 debts, be given a huge positive impact in the formula used for all future calculations of a customer’s credit worthiness.

Although we emphatically agree that some personal debt is necessary, we also acknowledge that there are limits to the debt that we have left. For that reason we further recommend the passage of legislation either on a Federal level or by individual states to again set a high limit on the amount which can be made from borrowing. That decision is a societal one, not a corporate one. Society should reclaim its responsibility to monitor and set its usury guidelines; it’s a responsibility that should have never been delegated to those profiteering from the interest.

Lastly, to assist in personal savings, we recommend the restitution of buying U. S. Savings bonds. We further recommend the use of a mandatory deduction from each person’s payroll for US. Savings bonds at whatever low interest rate shall be determined. This will understandably have the effect of a new tax at first, drawing more money out from the private sector of the economy. But over time it will return that money back and provide all of us the benefit of lower future taxes, especially if it is used as a tool or way to restructure our gigantic, impending national debt. Opposite of a tax, under this plan each lender WILL get a full return of his money back at some future date. Under this plan, our nation is borrowing from each and every one of it’s citizens; it’s citizens in turn are investing in their nation, and accumulating personal savings while doing so. The explicit difference between this new plan and Social Security, is that in this case, all of the amount that an individual actually does put in, will one day be returned to either himself or his dependents. Unlike Social Security which was “supposed” to grow independently within a trust fund arrangement that was completely outside of the regular budget of discretionary governmental spending, this mandatory savings fund is designed to 1) increase the national amount of savings being done by all Americans, by 2) supplementing the national budget by explicitly invested that yearly amount into the paying off of our nation’s obligations. We recommend that this program should have written into its passage, that the yearly amount collected from its citizens, be at least, equal to that segment of debt decreased from our nation’s obligation. In other words, all the money goes to pay down the national debt. It can be used for no other reason.

At first glance this appears as one more obligation. Even if we eliminate a good portion of our National Debt, we will still have large sums sucked out of America’s pockets just to reimburse our thirst for retirement income and medical care of the poor and elderly. Currently discretionary spending is only 1/3 of our budget. Two thirds of our budget has already been committed to be spent and cannot be touched….

It is to that two thirds that we must addressed our concern if we are to EVER achieve solvency as a nation.

To that end, we recommend that Social Security taxes be increased 1.7% from the current amount of 12.4% of payroll up to 14.1% of payroll. We further recommend that Social Security benefits commence at age 70, instead of age 65. Together these will bring Social Security back to solvency.

Cutting back on the amount going out to retiree’s was not an option. Social Security currently takes up between 4 to 5 percent of our GDP. Social Security cuts depress economic activity and depressed economic activity is NOT more of what we need now. Social Security Cuts need to be taken off the table. For every dollar cut out of Social Security, the economy depresses by a factor of three. Social Security can become solvent through the 1.7% payroll increase, and by raising the age of retirement to 70.

Medicare and Medicaid is a different story, however. That entitlement in its current state, will be 5 times more costly than Social Security. That entitlement just simply cannot continue in its current fashion.

We recommend a shift in our nation’s focus towards it’s priorities on health care. Instead of our government guaranteeing unlimited care for keeping the dying alive, we feel its priorities should be shifted towards keeping the living population healthy. Our recommendation is to institute a new version of health care in which the Federal Government pays for preventative care, and leaves the ballooning massive costs of staying alive to private insurers.

We recommend that doctors be paid a flat fee per visit, and that the payment for that visit comes from the federal government. This would release significant savings to medical practitioners who require an inefficient number of staff just to deal with the maze of insurance regulations and requirements for each individual patient who pays a visit.

To pay for this, we are recommending that initially, an additional insurance payroll deduction ($11.48/ week) be applied to each paycheck. Over a short time, we recommend the removal of the Medicare and Medicaid programs as they stand today. By then the current Medicare tax would cover this program. This change will save roughly 400 billion currently paid to cover the Federal government’s responsibility towards our health care… Within four years this savings could pay off our national deficit in discretionary spending, and within ten years it alone could pull us out of debt.

We recommend that screening for the four largest human killers; colon cancer, heart disease, strokes, and prostate , be free of charge to every patient and be performed as perfunctorily as are our vaccinations of toddlers today. Our proposal is similar to health care programs of other wealthy nations. We propose that in one year we progress to step one, which is to have all medical, emergency room, and dental visits covered by the Federal government. Currently we found that a $75 dollar flat fee for the initial visit, irregardless of the ailment was sufficient, but argue that these fees be set regionally by boards of physicians themselves… We further recommend that after first visit is covered in full, if required, the second gets paid only at 50%, and subsequent visits are not covered at all. This provides sufficient incentive for doctors to get it right the first time, and prevents the stringing along by doctors of uncertain hypochondriacs in order to soak up additional federal dollars.

The estimated cost of preventive health care on a fee only basis is around $82 billion. We feel that it is the nation’s responsibility to insure that each of its citizens has the right to live healthy by providing free preventative health care; likewise we feel it is NOT in our nation’s best interest to squander our children’s inheritance just to pay for us to cheat death a couple of minutes more….

The Second team needs a solid goal. Financial solvency by 2020 would be a good start. The two best ideas we found to achieve that goal were to mandate a required national savings policy using Savings Bonds to pay down the national debt, and to revamp Medicare to pay 100% for all preventative and minor health care, but leave to private insurers the responsibility to cover the catastrophes if and when they occur.

The third’s team role will be to shift us away from huge government involvement in the economy, back to an economy that is privately run. Over the course of the past century we can see both benefits and pitfalls in following either privatization or socialism. Each are good in their time, and each if trending too long, comes to the point where each creates more problems than they solve. The smart method is to handle this occurrence by planning for it in advance. That would be the focus of the third team. This team would take the the long term problem of shifting our energy away from Carbon. It would tackle the problem of paying down our National Debt. It would look at our economic viability in the next two or three decades and recommend changes that might be required. It would look at tax policy to determine the ideal amount that creates a three legged system balanced between the government, business, and the people… After all the optimal size of government is relative. If it imposes itself upon businesses and the people, it is too big. If it fails to protect us, it is too little. Our wisdom has been enhanced. No more shall businesses and government expand at the expense of the people; no more should the people expand their government too far at the expense of business. We now understand that each leg’s function is to compliment the other two, and when in perfect balance, all three prosper.

The third team’s goal will be to examine all options available. and restore that balance between all three legs… There is a good chance that they will want to deviate from some of the plays we are calling in today’s game… That’s fine. After all, what is important is that we win today’s game, win tomorrow’s game, and continue to win all of next season’s game….

The play we need is simply the “full court press”

This humble plan is the beginning of getting us there.

The official results do not come out until later. But preliminary evidence has now proved beyond all doubt that no recession this grave has been experienced during the lifetime of anyone younger than 69 ( a good number by the way).

There are signs that those in the know like to watch, which tell the future years down the road and those signs now point to a Great Depression. It would be wise to note, that these “shades of what may be to come” as mentioned in Charles Dickens Christmas story can still be altered by changes in future events…

The fate was solidified with this which occurred on today’s last broadcast of CNN’s Late Edition. Vice President Dick Cheney, known among betting men, as “the man who is always wrong”, today declared “that its premature to call it the worst economic crisis since the Great Depression.”

Being the one to know, Mister “He-who-is-never-right”; with a record of wrong choices a mile long, some of which include statements such as: “I am the best person to serve as the Vice President of the United States”; “Deficits Don’t Matter”; “Be Afraid, Be Very Afraid”; “There are stockpiles of WMD’s in Iraq and we will find them”; “We have to make America the best place in the world to do business”; “We will in fact be greeted as liberators”; …… always seems to make sense at time, but after ample time has passed, seems to have strung us along, fully knowing what he was saying was not backed up by facts, and each time seems to have bettered himself financially by having us believe in what he says, and take him for his word.

So if we look at his record, we see that he was wrong on Iraq, wrong on Afghanistan, wrong on Iran, wrong on Israel, wrong on Syria, wrong on Georgia, wrong on tax breaks, wrong on the deficit, wrong on securities deregulation, wrong on the economy, wrong on global warming, wrong on renewable energy, wrong on Enron, wrong on education, wrong on environmentalism, wrong on ethics, wrong on Executive privilege, wrong on gasoline prices, wrong on immigration, wrong on privatization,wrong on racism, wrong on what’s best for America; we can only assume by his track record that he is also wrong when he says it is too premature to call this episode equal to the Great Depression. Of course you can go against conventional wisdom and bet against him, ……… but the odds of winning are long…… way too long……

As his track record shows, he is fully aware of the facts, and each time he makes such a brash statement, it is ultimately proven to be wrong and designed to throw us off. Therefore the best option to take away from his last interview as Vice President on CNN is to accept the premise that we ARE in a Great Depression, and pull out all stops now to stop its slide, ….. before it is too late… That means pulling out ALL stops, so that the opposite of this foreboding last statement by Cheney is not given its chance to come due:

“The days of looking the other way while a despotic regime tramples human rights, robs it’s nations’ wealth, and then excuses it’s failings by feeding it’s people a steady diet of hatred … are over.”

As of this writing we have 8 days and twenty hours before it really does comes true………. Let’s not jinx ourselves by listening to any arguments being made by Cheney’s compatriots now arguing against the passage of Obama’s “Economic Jump Start”. Remember all along, they were just as wrong too……..

Courtesy of DelawareLiberal.net

Because that……. is what we do.

Today in a conference room off the first floor of the Senate building, a small discussion about large things will take place……very large things. The GAO will present their findings surrounding their investigation of the PBGC fund. What will be said about this small fund, should stab a stiletto into the heart of any future discussion about privatizing Social Security. Sure, if one is young, with no assets, and just beginning to invest, privatized Social Security initially sounds like a “grand” idea. Everyone assumes: “Wow, will I be rich when I retire!.”

 

But theory and practicality often diverge. When investing they rarely tred the same path. The prime reason is of course human. Humans in charge of lots, and I mean we are talking about tremendous sums of money here, tend to make dumb decisions. At least they look dumb to us as we see the liabilities of our plans rise far above our assets. But to those benefiting from commissions assessed to these large sums, they of course still look as brilliant as the day they were conceived..

 

Although the hearing (at this writing) has not yet occurred, one can expect to see what happens then a federally guaranteed pension fund becomes mismanaged (by good, well intentioned people of course). No one has a crystal ball. But to give one an idea of the types of choices that need to be made often on a daily basis: is it better to invest in stable income at 3% or play the foreign markets where risks are high, and occasionally, so are the payouts?

With assets at 55 billion, a quick calculation reveals that when volume of this type is turned over to private companies, commissions of 1% to 2% range amount to between 550 million to 1.1 Billion dollars. After grasping this fact, one slowly begins to understand why the financial sector is pushing hard to privatize Social Security, which as all of us know, is a “slightly” bigger fund.. Face it. If any of us were grossing half a billion a year, would we truly care too much if, with no penalty to ourselves, several million $300 checks were returned for insufficient funds?

 

So what happened with the PBGC?

 

First some background: (courtesy of Wikapedia)

 

The Pension Benefit Guaranty Corporation (or PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage both the continuation and maintenance of voluntary private defined benefit pension plans, as well as to provide timely and uninterrupted payments of pension benefits, and at the same time, keep pension insurance premiums at the lowest level necessary to carry out its operations.

 

One reason Congress enacted ERISA was “to prevent the ‘great personal tragedy’ suffered by employees whose vested benefits are not paid when pension plans are terminated.” When a defined benefit plan is properly funded by its sponsor, its assets should be approximately equal to its liability, and any shortfall (including benefit improvements) should be amortized in a relatively short period of time.

 

The key words throughout this diary are that in a properly funded pension plan, the assets should be approximately equal to its liabilities. Apparently this is not so, As anyone who has closely studied this administration might guess……the liabilities are indeed, greater than its assets. Just how much? That is the bombshell to be dropped in the Senate committee room today.

 

The PBGC is responsible for the pensions of 1.3 million Americans, but we don’t currently have the resources to keep all of our future commitments,” the newly appointed PBGC Director Charles E.F. Millard announced on February 18, 2008. (The PBGC had an accumulated deficit of $14 billion as of year-end FY 2007. )

 

Several large airlines have filed for bankruptcy reorganization in an attempt to renegotiate terms of their pension liabilities. These debtors have asked the bankruptcy court to approve the termination of their old defined benefit plans insured by the PBGC.

On September 14, Delta Airlines and Northwest Airlines filed for bankruptcy the day before they would have had to contribute about $200 million, in total, to their pension plans. Both airlines’ pension plans are severely underfunded, Delta’s by about $10.6 billion and Northwest’s by about $5.6 billion. If these plans are taken over by the federal Pension Benefit Guaranty Corporation (PBGC), the agency’s deficit would rise over a third from its current $23.3 billion.

As far back as 1984, in National Labor Relations Bd. v. Bildisco, 465 U.S. 513 (1984), the U.S. Supreme Court ruled that Bankruptcy Code section 365(a) “includes within it collective-bargaining agreements subject to the National Labor Relations Act, and that the Bankruptcy Court may approve rejection of such contracts by the debtor-in-possession upon an appropriate showing.” The ruling came in spite of arguments that the employer should not use bankruptcy to breach contractual promises to make pension payments resulting from collective bargaining.

 

If a creditor is unsecured and there is not enough money,….. they usually are not paid. So as a matter of practical economics, if the downturn in a company’s fortunes which resulted in bankruptcy makes the performance of an executory contract less valuable than its breach, a rational company would breach!

 

As we look forward to the now flagrant warning signs of possible economic collapse, a total breakdown of our underfunded private pension system may make a difference in the number of homeless retirees wandering our streets after such a cataclysmic market event happens. After tomorrows’ hearing it will be obvious to most, that based on the performance of the Pension Benefits Guaranty Corporation’s own assets over the past seven years of Republican administration, that at least when Social Security is handled by a government of the people,… and not by a corporation dedicated to it’s own profit,…. we have a slightly better chance of having actual citizens receive actual benefits.

 

For the bottom line is this. When handled privately…………….bankruptcy, reorganization, and non payment, is always cheaper than fulfilling one’s obligations.